| NEW YORK
NEW YORK While Alcoa Inc (AA.N) executives expect aluminum markets to remain sluggish for 2009, they do expect an 11 percent increase in demand growth for the second half, not including replenishment of very low inventory levels throughout the supply chains of its end users.
On a conference call following a surprise profit for the third quarter, company executives said they see most of the aluminum giant's end markets remaining distressed through the end of 2009, but are seeing modest sales increases in global truck and trailer and automotive segments for the second half.
Klaus Kleinfeld, Alcoa president and chief executive officer, said the Pittsburgh-based aluminum producer projects global demand growth to decline by 6 percent for the year and fall 10 percent without China.
"Our consumption outlook has slightly improved. A few weeks ago we modestly improved our forecasts for Chinese demand and now think it will be 4 percent for the year," said Kleinfeld.
For the second half, however, the company sees demand growing by 11 percent over the first half with increases in every region, "driven by emerging markets growth which has already started in places like China, stabilization in the western world and stock levels at low levels," he said.
"The demand that we're seeing here is not expected to be driven by replenishment of low stocks. But we believe that will kick in," the executive added.
On the supply side, Kleinfeld said he expects the aluminum market surplus to shrink by year end, with smelter curtailments fully implemented and demand starting to pick up.
Alcoa has idled more than 20 percent of its smelting capacity, compared with an industry average of around 17 percent.
Almost daily Alcoa reviews potline by potline on a regional basis whether to curtail or restart capacity, he said.
"At current prices," Kleinfeld said, "we don't feel that this is conducive for any restarts in the western world."
With producer and U.S. distributor inventories at all-time lows, once demand picks up in earnest, he said, a ripple effect should cause a "very rapid pick up in the supply chain."
"The supply chain is currently very thin and we believe it is going to need to be filled," he said.
Specifically, Chief Financial Officer Chuck McLane said, shipments in Alcoa's flat-rolled products rose 6 percent in the third quarter, giving evidence of a slight uptick in activity.
However, in the aerospace market, McLane said: "We're seeing an increase in destocking activity as the supply chain swelled to levels anticipating a higher build rate than those estimated in the current forecast. As a result, we expect revenues in this market will be at lower levels for the next 6 to 12 months."
Kleinfeld said Alcoa looks for aerospace deliveries to be flat for 2009 with sizeable backlogs lasting several years.
"Destocking is going on throughout the entire aerospace supply chain. We believe that will continue. Customers have up to 12 months supply at this point," the CEO said.
Alcoa sees a 15 to 20 percent drop in global auto sales for 2009, but a 5 to 10 percent sales increase in the second half, with the cash-for-clunkers program stabilizing the sector.
And though September car sales fell about 40 percent after the program ended, dealer inventories remain historically low at about 38 days worth of supply versus the industry norm of 60 days and certain models have shown healthy sales, he said.
Elsewhere, global beverage can sales should hold steady, construction sales should decline 10 to 15 percent in 2009, slowing to a 5 percent drop in the second half, and the gas turbine build rate will stay 15 percent lower throughout 2009.
At the same time, cumulative shipments in the European, Japanese and U.S. supply chains have risen 14 percent from the bottom hit in February and year-to-date price premiums for physical metal have gone up 30 percent in the U.S., 114 percent in Japan, and 209 percent in Europe.
"That's a clear indicator that something good is happening in that market. This has reached levels that we have not seen since well before the crisis," said Kleinfeld.
(Reporting by Carole Vaporean; Editing by Bernard Orr)